Information, decisions and social security

Social security systems that give an important role to the markets, in health and in pensions, are built on the assumption that persons can take rational decisions. We believe people can take rational choices given that they are not information constrained. Nevertheless, there are several examples in health and pensions in which the acquisition of information is very costly. For example, in the United States many people covered through Medicare's Part D drug-insurance program find very difficult to calculate their cost of drugs, specially in the system known as reference-based pricing (patients who opt for a brand name drug when a generic equivalent is available must pay a copayment and the difference in prices). In the case of reformed pension schemes, specialist had agreed that the low competition observed in the markets is mostly explained by the low elasticity of the demand and to a lesser extend by supply factors: potential affiliates choose their pension fund manager based on promotional efforts rather than on fees and returns, key elements that will determine the pension.
This behavior must be taken into account for the design of social security programs. In this regard, we believe that
1. Policy makers should be aware that systems take time to mature. At the initial years of the program people can make mistakes in their decision but as the system matures people start making more rational decisions, this is the experience in reformed pension schemes.
2. Policy makers should simplify the decision that an affiliate should take. It has been widely proved that when persons are confronted to easier decisions they make more rational choices.
3. Authorities should implement important informational campaigns. In this regard, public agencies have an important role to educate affiliates. Information should take place at two levels, mass and personal based.